Insiders' insight

AgBank: Agricultural Bank of China may not get everything right when it comes to lending. But the giant state-owned lender, which is getting ready for an IPO, seems to have remarkable insight into the future of the yuan.

The AgBank prospectus, which came out a week before Beijing de-pegged the yuan, included a quite precise currency forecast -- 6.5551 against the dollar, a 4 percent rise in 2010. Most companies do not even disclose their assumptions, let alone publish them to four decimal points. But AgBank does not seem be making itself much of a hostage to fortune.

The Chinese currency seems to be moving in its direction, up 0.66 per cent since de-pegging on June 19. AgBank executives also offered precise assumptions on the future level of interest rate and reserve requirements. It helps to have good connections.

Such information may help AgBank meet its 2010 profit growth target of 27.5 per cent, and the government would like the shares to do well.

Still, the stock market doesn't always follow orders, even when they are delivered by powerful people. In 2007, the chairman of Shenhua, a state-owned coal producer, said he was disappointed by the share price. It jumped 90 percent in response, but bad business eventually trumped good politics.

The shares subsequently lost three quarters of their value. So perhaps investors should not be much comforted by the comments of Pan Dongsheng. The AgBank vice president reportedly said that share price wouldn’t fall below the IPO price. That could be a stretch if AgBank’s Shanghai shares are priced at the top end of the band, as is typical of Chinese IPOs. At 1.63 times book value, a slim 6.4 per cent discount to China’s largest lender ICBC, there is little room for error. Even if AgBank shines, it may not be bright enough to overcome a dull Chinese market. The Shanghai index has fallen 5 percent in the last two days alone. When it comes to investment decisions, investors should trust their own judgment more than the best informed authorities.